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The Future of Spend Management Approaches Opportunities and Challenges in A Digital World
The Future of Spend Management Approaches Opportunities and Challenges in A Digital World
The Future of Spend Management Approaches Opportunities and Challenges in A Digital World
Authors:
The Future of Spend Management:
Mickey North Rizza
Kevin Permenter
Approaches, Opportunities,
November 2019 and Challenges in a Digital World
IDC OPINION
Procurement spend is Procurement spend is the largest expenditure for all product-centric businesses. Yet it is
the largest expenditure also very often mismanaged in many companies. As a result, there is a growing tide of
for all product-centric dissatisfaction with the current state of spend management applications. Too many of them
businesses. are built with legacy technology and designed with legacy thinking. There is an opportunity for
intelligent, data-driven tools that look at all aspects of spend management including services
procurement. IDC believes that organizations will immediately recognize the benefit of a
holistic spend management suite that enables, via machine learning, the business to do more
with less while still focusing on cost savings and reducing supply risk.
EXECUTIVE SUMMARY
Over recent years, spend management has become even more complex as market dynamics
and business models continue to evolve. A few key questions: What are the key challenges
involved with tackling spend management? What role can advanced technologies such as
cloud, artificial intelligence, and machine learning play in advancing spend management? What
tools are available for organizations looking to move to the next level of spend management
beyond control to enablement? This white paper seeks to answer these questions.
To understand the current state of the market, IDC fielded the Intelligent Spend Management
Survey in July/August 2019. The survey polled 800+ respondents online across four regions
worldwide to collect information on current buyer behavior of spend management decision
makers. The survey also polled respondents on spend management approaches, top challenges
and unmet needs, and intelligent spend management product concept reaction. Insight
gleaned from the survey can serve as a road map for spend management software buyers
looking to understand how critical an enterprisewide approach to spend has become.
In the end, this white paper explores the key benefits when people, process, and technology
come together to empower the future of spend management.
SITUATION OVERVIEW
Spend management is the management of business expenditures. It typically includes
processes necessary to gather and categorize expenditures and the analysis of spend data of
all types. Managing spending means having visibility and management control into all areas/
categories of spend across the entire organization. The most common major categories of
business expenditures are as follows:
• Direct spend: Direct spend refers to spending that is essential to the manufacturing of
your product (i.e., raw materials, components, and hardware that are directly related to
making products). Examples include sugar for a candymaker or chipsets for an electronics
manufacturer. Even services that are required to make the final product may be
considered direct spend (e.g., contract manufacturing for cellular phones).
• Traditional indirect spend: Traditional indirect spend refers to spending on goods and
services that are not directly related to the manufacturing of your product. Indirect spend
is, however, critical for sustained operation of the business. Examples of indirect spend
include maintenance, utilities, and IT costs.
• Travel expenses: Travel expenses are expenses incurred while travelling on behalf of the
company, including for sales/consulting activities, industry events, and conferences. In
some industries, professional services, IT services, and travel expenses can represent the
lion’s share of overall spend.
The process of spend management involves collecting these data points on every business
expense type. These areas are constantly undermanaged because businesses often do not
have the right tools to get real-time insights into these spend categories.
48%
39%
36%
33%
30%
Spend management departments often utilize a multitude of tools to view and manage
spend. Organizations end up with multiple spend management technologies cobbled
together to try and bring all workflows within spend management. The inefficiencies of too
many workflows — many that run over each other — along with the data duplications and
discrepancies between systems end up adding more time in addition to poor quality data
reconciliation and process compliance concerns to the procurement workstreams.
The spend management process hasn’t changed a great deal in decades for many companies.
In detail:
• Paper-heavy processes: Paper is the bane of speed and agility within spend
management organizations. It is slow and opens the door to a myriad of human error
types. Perhaps the biggest issue is that paper presents little opportunity for data analysis
and insight gathering.
• Multiple layers of sign-offs for every expenditure: While there are examples of
expenditures that demand heavy oversight (high-value purchases or shared assets/
services), many organizations are plagued by approval workflows with too many sign-
offs — even on mundane purchases. This slows the process down tremendously and adds
additional low-value tasks to managers’ everyday workload.
IDC’s SaaSPath Survey
• Overreliance on spreadsheets: There is often an overreliance on spreadsheets when
revealed that 47% of
respondents were using an organization has either ineffective tools or inefficient processes or both. For example,
spreadsheets for spend IDC’s most recent SaaSPath Survey revealed that 47% of respondents (from large and small
data analysis. organizations) were using spreadsheets for spend data analysis.
• Resource planning. With little knowledge of when new supplies, fixtures, and equipment
arrive, resource capacity issues arise if only a few technically skilled employees are
available to install and set up the products. In addition, technically skilled employees may
be in short supply if the local supply base is ramping up to meet the growing business’
supply chain demands.
• Travel optimization. Employees from various parts of the organization may need to
travel to facilities for training, hiring, supply base needs, and so forth. Myopic spend
management practices reduce both the employees’ and employers’ view, limiting
informed decision making such as booking a trip to coincide with major events or at
company-negotiated rates during a certain time period. If the visit is out of country,
expenses may also include value-added tax (VAT) reclamation and cross-border payroll
taxes in the spend. Efficient tracking of expenses is required, so employees can be
reimbursed quickly by matching financial recognition requirements.
• Alignment with strategic goals. Sustainability initiatives are paramount to the intelligent
enterprise. Without an expanded view of the initiatives tied to the supply base and spend
categories, becoming a greener, wasteless organization can be in jeopardy.
In IDC’s Intelligent Digitizing spend management processes is becoming a major focus area for many
Spend Management organizations. Digitization enables the business to shift from transactional processing and
Survey, 90% of semiautomated processes to managing the relationships while also controlling costs and
respondents say there is reducing risk. However, digitization is a moving target for most organizations. In fact, 90% of
room for improvement.
respondents say there is room for improvement to control spend. Figure 2 provides the top
issues in controlling spend.
Supply chain planning is A deeper look at the survey data on specific issues related to controlling and managing
a critical aspect of spend spending reveals that excessive logistics costs, high inventory costs, and determining when to
management to address move to alternate suppliers were top issues for all job roles connected to spend management.
top control issues. This indicates that supply chain planning is a critical aspect of spend management. Given the
number of moving parts involved in supply chain processes, the overall supply chain itself is
highly susceptive to delays and shortages, especially for companies in fast-moving product-
oriented industries such as CPG and retail.
Also, survey respondents cited as top issues the lack of ability to drill down on expense reports
and the lack of ability to audit expense reports. These issues impact the expense management
administrator’s ability to have much-needed visibility into past expenses and a view into
upcoming expenses. Again, these survey respondents would benefit greatly from an updated
spend management infrastructure with modern dashboards and analytics.
Issues around compliance are also top of mind for spend management job roles (refer back
to Figure 2). Specifically, over 30% of the executive offices are particularly concerned with
compliance to spend management policies as this allows an executive more control and allows
executive to be able to have deeper trust in budgets and forecast — essential for making
strategic business decisions.
• Evolving business models: Subscription business models are set to grow rapidly in the
coming years in nearly every sector. However, the greatest challenge for procurement
applications is from the rapid rise of mixed/hybrid business models (i.e., traditional and
subscription based). More and more companies are operating mixed business models that
offer both products and services in both a traditional and a recurring model. For example,
a software-as-a-service (SaaS) software vendor may also sell professional services/
consulting. Many of the larger consulting companies are offering software applications in
addition to their consulting services (e.g., Accenture and Deloitte).
can more effectively select the right sources of supply and provide a much higher degree
of data visibility on both the supplier and buyer sides of the transaction.
• Protect the bottom line: Procurement/sourcing savings often have a direct impact on
the company’s bottom line. Categories such as travel, logistics, marketing, IT, and MRO are
prime places where streamlined spend management can greatly impact the bottom line.
The Intelligent Spend Management Survey delved into ways respondents were looking to
improve spend controls within their organizations. Not surprisingly, data management takes
center stage for spend management professionals. Improving data accuracy and completeness
of metrics helps executives with visibility in managing day-to-day activities and emphasizes
the need for access to real-time data and reporting. Further, improving accuracy allows
organizations to have more confidence to be more aggressive in their growth strategies, such
as expanding into new markets. Figure 3 provides the top issues to be addressed for improving
spending control.
These issues become even more challenging to address as organizations grow in scale and
complexity. In fact, today’s supply chains are increasingly under strain as the pace of business
(including time to market) continues to accelerate. As the difficulty of managing the supply
chains increases, organizations are increasingly looking toward technology to alleviate the
pressure.
Another area where improving spend control is critical is the area of services procurement. With
the additional controls afforded by an intelligence spend management platform, companies
can monitor the quality of work from service providers — greatly limiting the frequency and
impact of poor work quality from service providers. In addition, managing compliance of
companies with regard to service providers is another complex situation for many companies.
For companies using legacy tools, ensuring service providers have the right certifications and
training is often very difficult.
There are vast differences by region when respondents were asked whether there is room
for improvement in their spend management processes (see Figure 4). The Latin America
group felt the most strongly that its spend management processes have much room for
improvement.
Figure 4 shows that within emerging regions such as Latin America and the Middle East and
Africa, survey respondents still felt there was a need for more maturity in spend management.
The localization issues within Latin America, for example, make supplier management
extremely complex. The relative lack of technology infrastructure in many areas of Africa,
for example, make vetting and onboarding an external workforce a difficult challenge for
companies operating in that region.
49%
47%
47%
66%
One of the major contributors to this deep-seated desire to improve spend management is the
prevalence of legacy spend management tools and processes. Legacy spend management will
be explored in the section that follows.
53% of respondents Travel expense management and procurement are not optimized without actionable real-time
currently manage data. Without the real-time view into spend, the decisions that are made are not complete nor
different types of do they, in many cases, consider the present and future conditions. For example, organizations
spending (direct, indirect, with the necessary visibility into employee travel patterns won’t be able to negotiate optimized
travel and expense, and
rates for frequently used hotels, rail services, or airlines. They may also not be able to incentivize
services) with separate
budget-conscious spending when employees are making travel decisions. For services
applications.
procurement, lack of real-time information can lead to major onboarding and offboarding of
service provider problems for companies stuck with legacy technology. Invoicing and payroll
become problematic for the external workforce without the right technology.
Figure 5 details the core differences between legacy spend management and intelligent spend
management.
Manual Automated
Disconnected Connected
Reactive Predictive
Importantly, legacy systems are typically reactive — often working to fix procurement/sourcing
issues after they occur rather than looking ahead to anticipate issues. For most businesses,
spend management is primarily past tense. Traditional spend management data is a rearview
mirror focused on the past, not on the future of the business. In addition, spend management
is often an underfunded mandate in businesses — often forced to function with constrained
resources. Further, many businesses employ myopic spend management practices, which
greatly reduce the employees’ view of the various spend categories and limits informed
decision-making abilities. Without the ability to model previous spend to current budget and
planning requirements, organizations lose the ability to quickly adjust spend to changing
business priorities.
Finally, legacy systems are often focused on the operational aspects of the spend management
— efficiently moving requisition orders through the system. However, an organization, when
armed with the right tools, can spend time actively hunting for value for the company (i.e.,
renegotiating contracts based on usage to get better rates).
• APIs: Spend management interacts with many different external entities (e.g., product
and service suppliers, travel content suppliers, payment organizations, and banks) to
manage company spend. Spend managers end up using multiple disparate reports, emails,
faxes, and data from disparate sources to do their jobs. The answer is a unified spend
management system with modern APIs and developer tools. The potential of APIs’ usage
within spend management (travel, procurement, services procurement, and contingent
labor) is significant.
• Robotic process automation (RPA): Spend management is well suited for RPA
applications because of its high number of rules-based manual activities. RPA, when
applied correctly, excels in the high-volume transaction environments that are inherent
to procurement, accounts payable, expense management, and services procurement. In
many ways, RPA acts as the eyes and ears of the spend management department in finding
anomalies and gathering data from disparate systems for spend analysis.
• Cloud computing: Multitenant cloud offers users the ability to configure, upgrade, and
add more functionality from the 3rd Platform technologies and innovation accelerators
such as machine learning; and cognitive computing is driving organizations to purchase
cloud-based solutions.
Finance
Supply Intelligent
Procurement Source: IDC, 2019
Spend
chain Management
IT
Roughly 80% of today’s Roughly 80% of today’s spend managers’ time is spent on lower-level financial tasks such as
spend managers’ time invoice matching, purchase requisition, and vendor management. Intelligence through data-
is spent on lower-level driven technologies has the potential to automate many of these lower-level tasks — freeing
financial tasks such
up valuable organizational resources to focus on higher-level strategic tasks. The logical next
as invoice matching,
step is to embed intelligence throughout the spend management workflows within a unified
purchase requisition, and
vendor management. spend management application. An intelligent spend management application will possess the
characteristics detailed in the sections that follow.
• Accelerate with the pace of innovation. Customers are demanding faster innovation, and
this can only be achieved when evaluating/delivering improvements across the supply
chain — as they become more complex/multilayered, having the ability for a holistic view
95% of survey
respondents likely to of spend is crucial.
invest in and deploy
• Access third-party app providers to drive productivity and adoption; connect systems to
intelligent spend
management platform the apps employees are using today, giving them choice and convenience (e.g., Uber rides
in the next two years. and Airbnb travel bookings flow itemized into expense reports).
• Tailor each user’s persona as well as each category of spending. Spend reports are then
delivered in a smooth, consumer-like experience that drives up both adoption and control.
• Manage complex regulations, tax changes, business cultures, and accounting policy/
requirements standards to confidently expand rapidly.
• Integrate seamlessly with workstreams such as travel to reimburse, source to pay, and
external workforce management. Organizations can then trust one version of true spend.
Technology vendors are quickly innovating and answering the calls for resource optimization,
increased automation, and improved data that tie to spend management workflows.
• One version of truth and visibility: Intelligent spend management is a single version of
spend, bringing visibility across the enterprise. Predictive forecasting of spend types tied to
business planning can assist capital expense and operating expense planning
and budgeting.
• Cash flow, profitability, and cost savings: Intelligent spend management provides
for the optimization of the supply base, employee Travel and Expense, and working
capital; and along with improvements in operational planning, budgeting, and cost
management, enhances profitability, inventory, and cash flows.
• Removing duplicate payments: Companies may receive multiple invoices via different
channels resulting in duplicate payments.
• Sourcing: Spend and supplier visibility, guided actions, and sourcing events are
enabled intelligently.
• Supplier relationship management: Organizations have the visibility into how much
business is transacted with suppliers and start to make trade-offs on when to move to
alternative sources of supplies and tracking quality against key milestones to ensure
companies are getting the maximum value from their service providers.
• Validating supplier contracts: Organizations have the ability to ensure that contract
terms as negotiated by the procurement team are honored by the vendor.
KEY LEARNINGS
The digital economy is changing business resource allocation and business processes
significantly. Organizations are turning to innovative technology to bring more autonomy into
the workflows of spend management, buyer/supplier interactions, procurement governance
processes, and supply base management. The more automated and integrated the workflows,
the more the spend management professional increases productivity, achieves real-time
visibility, and can improve business outcomes. In detail:
• As spend management becomes an area of focus for many organizations to control costs
and become agile, the mindset of spend management professionals is shifting away from
the legacy approach and legacy technology to embrace an approach that is infused with
intelligence.
Analyzing both the supplier data and the spend data continues to be the most time-
challenging aspect for spend management teams. Unfortunately, most spend management
application vendors are not focused on solving the data challenges for procurement,
finance, supply chain, and accounts payable processes. Its time technology starts solving the
business challenges. The discussion of intelligent spend management is gaining urgency,
with 60% of survey respondents already in the discussion with a technology vendor on an
intelligent spend management platform. This suggests that to remain competitive in highly
dynamic markets, organizations must take action to begin the journey toward intelligent
spend management.
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